We live under a bridge

-- I don't know if it was because Total Fed Credit was down again
by $3.7 billion last week, or that foreign central banks pulled
out $12 billion from their account at the Fed, or that my wife
is getting suspicious about something, or what, but something
unnerving is in the air. And at times like these I think of the
lyrics of the song "Ghost Busters" that goes something
like "Something strange in the neighborhood. Something weird,
and it don't look good!" And if you saw the movie, you know
he was exactly right!

The sensitive economic nose
of The Mogambo goes "sniff, sniff, sniff", and I triumphantly
announce that the stench is not my feet, as is commonly assumed,
but the rotting, bloated, inflationary, gangrenous body of the
economy, and it portends the dismal, bankrupted, angry, cataclysmic
end of the stock/bond/real estate/debt/government bubble, but
(sniff, sniff, sniff) apparently covered over with gravy and
chocolate sauce.

Michael A. Nystrom, in his
essay at BullNotBull.com titled "Dow Manipulation"
seems to agree with me. He notes that the litany of bad news
is overwhelming when he lists "The yield curve has remained
inverted for months; we had the first negative reading in the
Philly Fed index in three years; national housing sales have
plunged and prices are showing their first declines since 1993.
The index of leading economic indicators has declined for seven
straight months. Online advertising revenue is down; newspaper
advertising revenue is down; the help wanted index is down. Across
the board the economic news is terrible - everything is pointing
to a recession."

So why are the stock and bond
markets rallying? Government manipulation! "It makes me
consider," he says, "that the only thing standing between
this market and a crash are the November elections." Then
he says the one thing guaranteed to send The Mogambo into a fit
of panic and screaming, namely that inflation is soaring. "Under
normal circumstances," he says, "today's inflation
report - the highest inflation reading in 11 years - would have
absolutely creamed the market. There is, to put it mildly, something
fishy about this market."

And when something is "fishy",
it means that it will get older, stinkier and more "fishy",
as it always does, until it rots away. And that lugubrious day
may be coming sooner than any of us realizes, as Susan Albright
has an article posted on IndiaDay.com titled "US Stock market
showing huge divergence - a sure sign of a coming multi-year
bear market." In particular, the Russell 2000 versus the
Dow is behaving strangely, although she did not mention the divergences
between the Industrials and the Transports, as does Richard Russell
of the Dow Theory Letters. She writes, as does Mr. Russell in
the final analysis, that these huge divergences are "a sure
sign of a coming multi-year bear market", and that these
kinds of anomalies are a "technical analysis tool for calling
major bear markets."

Her analysis? "The prospect
of the economy going into recession is high. The growth prospects
are low. The liquidity driven market may have already seen its
best days."

In a related note, the trade
deficit is now greater than the current account deficit, meaning
that we are importing more and more stuff from overseas, but
we are not "exporting" as much services, and/or foreigners
are not plowing their money into the USA, with customary reckless
abandon. So where in the hell all this money is coming from to
keep the stock and bond markets elevated is beyond me. But somebody
is in for a shock.

And in that regard, Bryon W.
King of Daily Reckoning writes
that in following the definition of "financial crisis"
defined by "the great analyst Charles Kindleberger",
then "Financial crises are 'associated with changed expectations
that lead owners of wealth to try to shift quickly out of one
type of asset into another, with resulting falls in prices of
the first type of asset, and, frequently, bankruptcy."

He profoundly goes on to write,
"Thus, financial crises are a product of sudden alterations
of expectations, rooted in reality or imagination. If you are
looking for a way to avoid financial disaster, this is the key
level of understanding."

I was surprised that he did
NOT immediately go into a Patented Mogambo Tirade (PMT) about
gold, which I would certainly have done, as in one short sentence
he combines "financial disaster" with "a way to
avoid"! Fabulous!

I leap to my feet, knocking
the plate of nachos I had in my lap to the floor, which unfortunately
makes them gritty and hard to chew, and I shout "And what
other way IS there, except by buying gold? Financial crises and
disasters, created by governments and bankers, ARE what propel
all of history!" Unbeknownst to me, the security guards,
in undercover mode, were sitting right next to me, and instantly
I was being manhandled and hustled out of the room. But they
had foolishly forgotten to bring the gag with them, so as I was
being dragged out I was yelling "Gold! In all of the crises
in history, nothing has ever combined 'financial disaster' with
'a way to avoid' like gold! Gold has always treated its owners
very, very well! Usually when everything else (and everybody,
like your neighbors and family) treated you badly! Like your
nasty little goon squad here!"

The good news is that this
"changed expectations" is classic "alternative
energy" at its finest, in that the poisonous gaseous vapors
of the rotting economy are the high-octane fuel for the coming
Great Gold Rally, where the world is divided into two camps.
In one camp are desperate, panicky people selling everything
in their stock/bond/real estate/debt/government portfolios to
buy gold and silver and hard assets.

And in the other camp are the
people who already own gold and silver, and are watching themselves
getting rich, richer, richest as the price climbs, climbers,
climbests, week after week, month after month, year after year!
And all without lifting a finger! A finger! In fact, as will
be indicated in your permanent file, that is what you gave your
boss a long time ago because of the riches you made in silver.
And now we are all retired, having the time of our lives, since
I assume the wife and family will take half of everything and
finally leave, since I am sure that I will have become completely
insufferable, and I will fondly remember how I called out after
them "I hate all of you!" and they will have yelled
back, as they motored away, "We hate you, too, dad!"
which completely rules out any slim, slim, slim chance of reconciliation.
So get more silver now!

We may be getting evidence
of this sort from alert reader Matthew C, who notes that "the
once plentiful supply of 'junk silver' available on eBay seems
have almost completely dried up." And alert reader Frank
says "suddenly now very little gold or silver for sale on
eBay."

And speaking of silver, something
big is coming, as we gather from David Bond at the Wallace Street
Journal, who got it from Peter Spina at Goldseek.com, who got
it from Ted Butler at InvestmentRarities.com, that "Barclay's
iShares filed Securities and Exchange Commission S-1 to acquire
another 168 million ounces of silver." Mr. Bond helpfully
notes that "That would be 11,525,000 pounds, or 5,232,452
kilos, of the stuff", which is roughly "one-tenth of
the entire output of the Coeur d'Alene Mining District since
the 1880s."

Supposedly, this is more than
the entire stock of silver in the Comex warehouses!

-- Alert reader Arthur K forwarded
a summary of "USA Personal Income and Its Disposition"
with the source of the data being "USA Department of Commerce
Bureau of Economic Analysis since 1953" from bea.gov. The
salient point was that, in all that time, the personal savings
rate had never dipped below 7% (and was usually comfortably higher
than that). People saved money.

Did you notice how, suddenly,
everything got all gloomy and dark? That is because I now reveal
that this positive level of saving only persisted until 1987,
the year that the horrid Alan Greenspan befouled the Federal
Reserve and started creating money and credit like it was going
out of style.

By 1993, only six years later,
he had so devalued the dollar so much that prices were progressively
higher, so that people were only able to save 5.8% of income.
And since then, thirteen years later, it has gotten so progressively
bad that not only are people now saving nothing, zero, zip, zilch,
squat, but they have to constantly go deeper and deeper into
debt! Every month! The actual number that should make you gag
on your own vomit was that savings have hit a new low; a minus
0.9% of income!

Does THIS sound like the behavior
of a rational, educated people who should be trusted with nuclear
weapons? Of course not! No wonder the world hates and fears us!
Well, maybe it's because we routinely kill so many of them, but
it's worth thinking about!

Part of the explanation may
be that "Americans Becoming Increasingly House Poor",
as said a headline from the Associated Press at msnbc.com. It
goes on to say that housing costs (defined as mortgage payments,
taxes, insurance and utilities) are "excessive if they top
30 percent of household income. Nationally, 34.5 percent of homeowners
with a mortgage had housing costs that topped that benchmark
in 2005, an increase from 26.7 percent in 1999. Nearly half of
California homeowners - 48 percent - spent more than 30 percent
of their incomes on housing last year."

And for renters the news is
as bad, according to the Census Bureau's American Community Survey,
which said that last year almost 46% of all renters paid 30%
or more of their gross income on housing.

-- Reader George W suggest
that we update our "official lexicon" by changing the
spelling of the phrase "health insurance", as it is
more accurately "replaced with the identical-sounding 'hellth
insurance', in order to more accurately convey the dual misery
dealt to my body and my wallet."

And since we are talking about
health insurance, it is in "crisis" because the socialist/communist
morons in Congress spent half their time over the last couple
of decades passing law after law requiring that healthcare providers
give first-class treatment to anybody who showed up, regardless
of ability or even intention to pay, and the other half of their
time passing law after law requiring insurers to cover more and
more things. And since somebody has to pay for it all, the "healthcare
crisis" is more aptly named "Congressional-induced
inflation crisis in the cost of healthcare."

-- If you want a job that will
surely end in disaster, thus saving you a lot of time and energy
spending 80 hours a week trying to do a good job and then still
failing miserably, then you are in luck. Doug Noland quotes Richard
McGregor in the Financial Times as writing "Within the next
few weeks, China's reserves are due to top $1,000bn ­ a record
for any country, let alone a developing nation like China. 'One
trillion is a big amount, but it is also a hot potato,' says
Ha Jiming, chief economist at China International Capital Corp.
'If it is not well managed, any erosion of value will be a source
of shame for whoever is responsible for it.'"

-- To show you that governments
tinkering with the economic statistics to disguise its egregious
failings and stupidities is now universal, from the Financial
Times we read "Greece suddenly found itself 25 per cent
richer yesterday after a surprise upward revision of its gross
domestic product, the fruit of a change to national accounts
designed to capture better a fast-growing service sector - including
parts of the black economy such as prostitution and money laundering."
Hahaha! The government of Greece has been spending and spending
so much that their public debt, "already among the highest
in the eurozone", but thanks to this trick, it would "shrink
at a stroke to 85 per cent of GDP from 107.5 per cent."

This sick, slimy sleight-of-hand
means that the Greek budget deficit, now exceeding the 2% limits
set by the European Union, "would fall well below the EU's
limit, from 2.1 per cent to 1.9 per cent of GDP."

The news is not all good, however,
as "Among the snags of becoming so much richer, Greece will
have to contribute more to the EU budget and could lose ¤470m
(£318m) a year in EU funds earmarked for poor countries."
Hahahaha! They thought they were so smart, and shot themselves
in the foot: They haven't increased tax revenues by a lousy drachma,
but they will get less from the EU in "welfare"! And
have to pay more to the EU, too! Hahaha! Nice move, morons!

-- Doug Noland has thoughtfully
provided, in his Credit Bubble Bulletin, the Mogambo Laugh Of
The Week (MLOTW) by transcribing The Women's Economic Round Table
forum attended by "New York Federal Reserve Bank President
Timothy Geithner, former NY Fed President and FOMC Chairman Paul
Volcker, former NY Fed chief and FOMC vice-chairman Gerald Corrigan,
and former NY Fed President William McDonough."

One immediate topic was the
legendary Fed "bailout" of Long-Term Capital Management,
which had set up some complicated bets to the tune of $125 billion,
of which $120 billion was borrowed.

We fast-forward to a question
by Heidi Miller. "And I wonder if, in retrospect, Mr. Corrigan,
you think that intervening in Long-Term Capital was a wise decision
and if so, do you think it made any difference long-term in the
evolution of the hedge fund market?"

Gerald Corrigan replies: "First
of all, I would take exception with the term 'intervention' or
'intervening.'" William McDonough chimes in with "Bravo."
The Mogambo leaps up with "Hahahaha!"

Mr. Corrigan explains that
they are all just a bunch of swell guys sitting around shooting
the bull. "If every time I called a meeting, to bring together
at 33 Liberty Street (NY Fed offices) a bunch of chief executive
officers of financial institutions, that had been defined as
intervention, I would've made Attila the Hun look like a pacifist."
What? What? What? Attila the Hun? What in the hell kind of insane,
bizarre analogy is that? And why in the hell are you always calling
these powerful people to your offices, anyway? And why do they
come? What in the hell is going on here?

He does not explain, but blithely
goes on to say that the Fed merely provided "a setting within
which a broad cross section of leaders from the private sector
were able to sit down in the presence of each other, and sort
out what they collectively thought was in their best interest
and in the best public interest to stabilize what potentially
could have been a very, very, very nasty situation."

Note that he said "In
their best interest"! Aha! What he means is "banks",
as some idiot bankers had stupidly loaned a lot of money to a
bunch of arrogant, conceited men, and were going to have to lose
money for being so impossibly stupid, and that keeping them from
eating their own mess was "in the public interest",
although it is not, apparently, in the "public interest"
to keep some moron banker from loaning so much money to them
in the first place.

William McDonough, seeing Mr.
Corrigan get all the attention, pipes up with the more insanely
bizarre quip that "I'm the public servant. The psychic income
of serving the nation as a patriot is mine." What? I can't
believe I am hearing this crap! "Public servant"? "Psychic
income"? "Patriot"? What in the hell is this lunatic
talking about?

For one thing, he is NOT a
"public servant", but is, instead, the exact opposite
of that; he is a private citizen, working in the private economy
as a banker, in a private bank! And he was a major part of the
Federal Reserve destroying the buying power of the currency,
and eventually destroying the country, by empowering banks to
create enormous amounts of money by making an enormous number
of loans, with no reserves at all, and he now has the nerve to
call himself a patriot? I am beyond livid!

But this kind of idiocy is
par for the government course, and if you were surprised to see
the price of oil and its products comes down, then so was Doug
Casey of Casey Research, which publishes the International Speculator,
as he reveals in his essay "Who's Keeping Oil Down?"
He asks "might the Republicans be trying to bring down oil
prices (and therefore gasoline costs) in an attempt to cull favor
at the polls?"

I am here to tell you that
the answer is "yes," as I am 100% sure that they are
doing everything they can, by coercing everyone they can, to
keep down the prices of everything they can, so that people will
not be grumpy when they vote, and then (they hope) maybe the
loathsome Republicans and the equally despicable Democrats in
Congress won't be thrown out of office as they so richly, richly
deserve.

Indeed, the view of the Deepcaster
newsletter is that "we are now witnessing interventions
massive in their degree and scope - - that is, we are witnessing
The Mother of all Interventions."

In the particular case of oil,
Mr. Casey notes that the "crack spread", which is "the
difference between the price that oil refiners pay for crude
and the price they receive for the gasoline they produce",
is, "in the words of the U.S. Energy Information Administration",
at "unusually low levels." Why is this noteworthy?

He notes that the crack spread
is "the profit margin that refiners make on their products.
This means that refiners are selling gasoline for little more
than the cost of the oil they purchase", and that "This
makes no sense from a business perspective", as "generally
in such a situation, refiners would simply up the sales price
of their gasoline, improving their margins. However, it does
make sense if the refiners are purposely attempting to keep a
lid on prices."

He admits that "Of course,
there's no way to prove this. But for energy investors, it's
worth considering. If gasoline prices are being artificially
depressed, we can expect a rebound during the last few weeks
of the year. Which-judging from the historical relationship between
gasoline and crude-would lift oil prices, and therefore oil stocks.
If such case does present itself, now might be the time to buy
oil producers, many of which are selling at fire sale prices."

And I am here to tell you that
while Mr. Casey may not have a wildly foolish and arrogant certitude,
I definitely do, and there is no doubt whatsoever in my Puny
Mogambo Mind (PMM) that the recent surprising fall in the price
of oil has nothing to do with the supply/demand dynamic, but
about the desperation of massive governmental extortion and bribery,
and that oil will soon rebound and keep going higher and higher
for a long, long time.

But it won't necessarily show
up in inflation statistics, as the NYTimes.com site reports that
"Goldman Sachs, which runs the largest commodity index,
the G.S.C.I., said in early August that it was reducing the index's
weighting in gasoline futures significantly." Why are they
doing this? Well, if you are the government, and you had lots
and lots of giveaway programs that were required to increase
monthly payments in response to inflation, you had issued lots
and lots of bonds with inflation protection provisions and saw
a looming need for massive amounts of borrowing in the future,
you would want to ignore things that are going up in price, too,
so that inflation (and the interest rates that they have to pay)
would stay artificially low.

And I am sure that I needn't
remind you of the apparent cozy, incestuous relationship between
Goldman Sachs and the government, and how Henry Paulson (erstwhile
Goldman Sachs biggie) is the new Treasury Secretary of the United
States, who will have to handle the mess, and desperately needs
interest rates to stay low.

-- "Dow 1170 and Other
World Indices" is an excerpt from an essay by Sol Palha
of Tactical Investor. He writes "Every single high the Dow
has put in the last 60-72 months has been illusory in nature."
The reason is that the dollar, in which these stocks are priced,
has fallen so much that the Dow would have to rise to a gain
of "30% plus from the highs it put back in 2000 to compensate
for the currency devaluation."

In short, long-term investors
haven't made any real (inflation-adjusted) increases in wealth
in 6 long, long years. If you figured to work forty years and
have your "investments" make you enough money to retire
on, you have now lost 15% of your time and not made a dime, and
that Tennessee Ernie Ford was right when he sang "Another
day older and deeper in debt."

And it is not going to get
any better, as according to final estimates recently released
by the Bureau of Economic Analysis, real GDP is increasing at
only 2.9%. And this is the estimate of GDP using an absurdly-low
estimate of inflation, which means that GDP is grossly overstated
at that. But even using these silly BEA numbers, real GDP increased
5.6% in the first quarter, which means that there has been a
48% drop in GDP growth!

They also report, as if you
had to be told, that growth in personal income is decelerating,
too, and is up only 1.7% in the second quarter. And when you
deflate that little bit of growth in personal income by the real
inflation that is roaring around us, income growth is, I am sorry
to say, decidedly negative.

As if to say "You were
right, Mogambo! You are not as stupid as you sound or look!",
the Bureau released the worse news that inflation, as measured
by the always-tame PCE (Personal Consumption Expenditure), accelerated
up to 1.0%.

From another perspective on
inflation, from Harper's Index we read "Percentage change
since 1991 in the average fee charged by smugglers of illegal
Chinese immigrants into the United States: +100".

Let's see, according to the
old HP 12C, taking 15 years to double in price is (hold on, as
it seems that using a calculator is a lot harder when you are
very, very drunk) 4.7% annual inflation, compounded. Yep, sounds
about right!

-- There seems to be a lot
of anger rising all over the place. "Who's to blame for
the things we're so angry about? Who's to blame for uprisings,
downsizings and the drought? Who's to blame for the end of the
good old days? Who's to blame for that backwards-cap-wearing
craze?" ask the Austin Lounge Lizards band. The answer is,
of course, that "Somebody must have changed the rules of
the game." What to do? Again, the Lounge Lizards reveal
how these things usually go; "So we've found a convenient
scapegoat we can blame." According to the band, the scapegoat
is "Teenage immigrant welfare mothers on drugs." Hahahaha!

Well, as much as I love clever
and witty lyrics in powerful, heavy beat, banjo-driven, multi-harmony
music on a simple 1-4-5 chord structure, I have to admit that
the Lizards are, alas, wrong about the ultimate source of our
misery.

Instead, the true answer is
provided by the troubadour of the hard-money set, Steve Dore,
who has an album entitled "Inflation
Nation". Stripping aside Mr. Dore's infectious, toe-tapping,
driving, boogie-woogie piano and clever lyrics, our problems
are caused by, as he sings, "300 now, 200 then, what might
it be tomorrow, purchase power goes down the drain. No wonder
we all got to borrow, purchase power, purchase power, losing
more each day. A little bit here, a little more there, inflation
steals it away. Nobody ever wants to see their money disappear.
Losing purchase power is something we all should fear."

And as a guy who is very afraid
of everything that I can't get a bead on with some kind of powerful
weapon, preferably a big damned cannon of some kind, I am here
to tell you that the fear of "losing purchase power"
is only one of the stages of shock.

The first stage of shock is
denial ("Stock market/real estate market falling in price?
Inflation in consumer prices are rising as the Fed keeps increasing
money and credit? Nonsense! Keep buying!"), then fear and
anger show up for awhile, constantly jostling for attention,
and only THEN does the government look for a scapegoat, as in
teenage immigrant welfare mothers on drugs. But more probably
Iran, which we will get us into a world-wide war with Muslims,
which will bring on stage four of shock (bargaining) so that
the government can easily impose a Patriot Tax, or a Save America
Tax, or a Defend America Tax, or an Anti-Terrorism Tax and they
can force people to buy Patriot Bonds, or Save America Bonds,
or Defend America bonds, or Anti-Terrorism bonds, and use the
money to spend, spend, spend our way to Utopia.

The final stage of shock is
acceptance, ("The idiot Mogambo was right after all!"),
and this is when you get questions like this one from quizzical
reader Rob H, who asks "After the world economy collapses,
which is the correct good way to speak English: 1) I now live
in a shack, 2) I now live in a shanty, or 3) I now live in a
hovel. I just want to know so I don't sound all dumb like."
My first answer is, of course, "Like, you know, whatever,
dude!"

The more thoughtful answer
is "We live under a bridge."

Ugh.

****Mogambo sez: If you are not buying more gold and
silver at these ridiculously-low manipulated prices, then you
are making the biggest mistake of your life. And that egregious
mistake is why the rest of your life will be spent reading investment
commentary, like the stupid Mogambo Guru, instead of drinking
champagne at a fabulous luxury resort and hanging out with your
rich friends.

Richard Daughty
is general partner and C.O.O. for Smith Consultant Group, serving
the financial and medical communities, and the writer/publisher
of the Mogambo Guru economic newsletter, an avocational exercise
the better to heap disrespect on those who desperately deserve
it. The Mogambo Guru is quoted frequently in Barron's, The
Daily Reckoning
and other fine publications.